Shares of IDBI Bank, Indian Bank, UCO Bank, Dena Bank and Vijaya Bank are moving higher in a gallop. Is it just the capital infusion by the government or something else?
A lot of smaller banks seem to be in a tearing hurry to make new highs or recapture old ones. Among these are IDBI Bank, Indian Bank, UCO Bank, Dena Bank and Vijaya Bank. What gives? One of the key reasons could be the government’s recent equity infusion of up to Rs6,200 crore in five State-run banks — Bank of Maharashtra, Central Bank of India, IDBI Bank, UCO Bank and Union Bank of India — and another reason is most of these banks are planning FPOs. Let’s explore further...
IDBI has risen from a low of Rs106 late May to Rs124. By the looks of its chart, it seems all set to aim for the Rs140 mark, provided it holds above Rs130. IDBI is not very widely tracked by brokerages (Sharekhan, IDFC, and Macquarie are among the few who track it). Net interest income (NII) estimates for the first quarter (Q1) range from Rs750 crore to Rs760 crore and net profit estimates from Rs180 crore to Rs250 crore. Macquarie says in its earnings preview, “Asset quality continues to worsen. Margins should be relatively healthy but headwinds ahead on higher cost of funds as liquidity tightens.”
So why is the stock so bullish? In IDBI’s case, the recent infusion will take the government’s stake to over 65% giving it a temporary respite and enough headroom for a follow-on public offer (FPO) that should shore up its finances and fulfil its capital requirements with ease (results on 22nd July). This is also expected to give a push to its lending abilities.
In Indian Bank's case, asset quality is expected to improve even more in Q1 (it had improved quite a bit in Q4 already). NII expectations range from Rs920 crore to Rs970 crore and net profit expectations range from Rs380 crore to Rs470 crore. Indian Bank, too, plans to raise about Rs1,000 crore through Tier II bonds and its target is to achieve a 22% growth in business to Rs1.8 lakh crore by March 2011. The focus of the bank, according to its managing director TM Bhasin, in recent interviews, is on lending to SMEs, corporates, and infrastructure along with building a stronger CASA. To achieve its loan growth target, Indian Bank will have to get to a CASA level of at least 34%. Mr Bhasin recently said that loan growth for Q1 was at 30%, which is higher than what the market expects. In an interview with The Hindu Business Line newspaper, he revealed that savings bank account balances had grown by 4.5% in Q1 vs 2% growth in Q1FY10. So results expectations (24th July) from this company are on the higher side. Indian Bank is almost near its January 2008 high of Rs257.
UCO Bank is getting about Rs375 core from the government under the recapitalisation scheme and will probably follow this up with an FPO since its total need is around Rs1,300 crore. The bank’s guidance for Q1 is 19% credit and deposit growth, mainly driven by large and mid-corporate sector, and net interest margin of 2.6%. Another positive (as viewed by the market) is that Arun Kaul (currently at Central Bank of India) will soon head UCO Bank. UCO Bank had touched a high of about Rs90 in January 2008 and its current market price is Rs84.
Incidentally, a lot of top-level changes are expected soon — S Raman will move to Canara Bank from Union Bank of India. M Narendra will move from Bank of India to Indian Overseas Bank. Ramnath Pradeep will shift from Central Bank of India to Corporation Bank. R Ramachandran will leave Syndicate Bank and assume charge as CMD of Andhra Bank, HSU Kamath will move from Canara Bank to Vijaya Bank, and Nagesh Pydah will move from Punjab National Bank to Oriental Bank of Commerce.
Dena Bank (results on 26th July) has risen from a low of Rs70 in January to almost Rs100. Dena Bank, too, is to be a beneficiary of government capital infusion. It is expected to receive Rs600 crore in this quarter and hopes to get another Rs700 crore over the next two quarters. Its CMD DL Rawal has decided to crack the whip on non-performing assets (NPAs) this year and has set a target of Rs75 crore-Rs100 crore cash recovery from written-off accounts in FY11. Motilal Oswal expects Dena Bank’s NII to grow 21% to Rs300 crore in Q1 and expects a 27% loan growth. Again, this bank is also not very widely tracked by institutional brokers. The stock is already at its January 2008 high of Rs98.
Vijaya Bank, too, has been the recent beneficiary of Rs1,200 crore recapitalisation from the Union government. Its chairman Albert Tauro said in an interview late June that protecting margins and asset quality has been a focus and hinted at a margin improvement and better NPAs this quarter. He set a net NPA target of less than 1% by end FY11 and net interest margin (NIM) target of 2.85% (results on 22nd July). The stock is not quite near its January 2008 highs of Rs100, but punters are watching for a breakout above Rs69.
Just a few days ago, Fitch Ratings upgraded the support ratings of five nationalised banks — Corporation Bank, Indian Bank, Andhra Bank, Vijaya Bank and Dena Bank to ‘3' from ‘4'. The upgrades “reflect the Centre's continued strong propensity and commitment towards maintaining healthy financial profiles for government-owned banks, and the government’s improved ability to do this based on better prospects for its fiscal position,” said the Fitch report. The government plans to ensure a minimum 8% Tier-I ratio for government-owned banks by end of FY11 and plans to infuse Rs16,500 crore to this end.
In a public notice released today, MCX-SX said "There have been attempts by some elements at spreading misinformation to create doubts among our shareholders and to undermine our reputation and business for their benefit"
Anguished by the lack of clearance from market watchdog Securities and Exchange Board of India (SEBI) to become fully functional despite meeting the norms, Jignesh Shah-led group firm MCX Stock Exchange today went public with its grievance and hit out at competitors, reports PTI.
Without naming the National Stock Exchange (NSE), MCX-SX also said that its rival was killing competition by offering free trading in currency derivatives, and thus making it difficult for it to get business and investors.
In a public notice, released today in the form of advertisements in dailies, MCX-SX said "There have been attempts by some elements at spreading misinformation to create doubts among our shareholders and to undermine our reputation and business for their benefit."
A MCX-SX spokesperson did not respond to queries if the company was alluding to rival exchanges like Bombay Stock Exchange (BSE) and NSE.
In an apparent attack at SEBI, it also said the go-ahead for doing full-fledged business was elusive despite MCX-SX having taken all the necessary steps to make it compliant to the relevant regulations about trading in equities, equity derivatives, interest rate derivatives, mutual fund and debt market among other instruments.
MCX-SX said that one of the key conditions put on it related to bringing down promoters' stake and it did so with a "capital reduction-cum-arrangement" scheme and SEBI was informed about the same, way back in December 2009.
While the scheme was already approved by the board and shareholders, it also got the nod of Bombay High Court in March 2010 and the same was also notified to the SEBI on 7 April, 2010, MCX-SX said.
But, the exchange has got "no response from SEBI in this regard" as of July 2010, it noted.
MCX-SX said that it was operational since October 2008, but was offering only currency derivatives product, and it was first given recognition by SEBI for one year only with a condition that it would meet the shareholding-related regulations by 15 September, 2009.
In another apparent allegation against SEBI, MCX-SX said in the same public notice that the regulator in August 2009 had approved trading in interest rate futures, to be traded on currency derivatives segment, but "it did so for exchanges other than MCX-SX."
"At the same time, SEBI renewed the recognition of the exchange for one year up to September 2010 on the condition that no new class of contracts in securities will be introduced without complying with the MIMPS (Manner of Increasing and Maintaining Public Shareholding in Recognised Stock Exchanges Regulation) regulations."
"Thereafter, it became impossible to get any new investors in the exchange with no revenues due to no fees or charges being levied by the competing exchange in the currency segment and more so because of no possibility of any new product without complying with MIMPS regulations," the public notice said.
"New Investors wanted MCX-SX to have regulatory permission for all segments, before investing, whereas SEBI wanted divestment before giving approval for other segments," it added.
MCX-SX said that this "log-jam" forced it to go for a scheme that required reduction in its share capital to bring down the stake of some entities, including promoter group firms Financial Technologies India Ltd (FTIL) and Multi Commodity Exchange (MCX), to 5% each.
Under the scheme, warrants were issued to the shareholders whose equity capital was cancelled by way of reduction.
MCX-SX said that its shareholders currently comprise of banks and public financial institutions with nearly 89% stake collectively and the "conditions stipulated by SEBI while granting renewal to the exchange up to September 2010 stands complied" after the high court approval in March 2010.
"Since then, MCX-SX is awaiting necessary SEBI approval for providing trading facilities in equities, futures and options on equities, interest rate derivatives, mutual fund trading platform, debt market, etc."
The company also listed out the members of its board of directors and the advisory board, which includes many former top bureaucrats and regulators.
Welcome to the real convoluted world of counterfeit currency in India, where the victim is prosecuted, the fence eats the crop, and the criminals walk free. This is the second part of a three-part series
Here are a few anecdotes that illustrate how tortuous the system has become as far as counterfeit currency in the country is concerned.
1) A first-generation entrepreneur chucks up a great career and is running a small eco-resort in a remote tribal area. Over the decades, the area becomes popular, and soon developers move in next door. Attempts are made to muscle in on his property, and he is being forced to shut down and sell out, advice given by others including yours truly is for him to do so. Things go from bad to worse, his wife leaves him in fear and relocates to his hometown with the children, but he continues fighting the system. One day, off to his bank to deposit cash collected, he is found with three or four counterfeit notes. The bank manager advises him to tear them up, but our friend wants to be a good citizen, and insists that the relevant RBI advisory-based FIR is filed. His enemies, of whom he has quite a few by now, come to learn about this — and now he is in all sorts of trouble.
2) While researching automobiles at fuel-filling stations where the attendants have seen me for decades and have some level of confidence in me, I come to learn that they end up dealing with and then refusing fake currency notes at least two-three times per attendant per shift. This is up from about two-three times per shift for the whole filling station a few years ago, and maybe once a day 10-15 years ago. Despite this, and having counting-cum-detecting machines installed, cashiers find a few counterfeit currency notes in their bundles when re-checked at the banks almost every day. These currency notes are the best of the counterfeits, are returned by the bank to the customers, and then passed on back into the system by using them to pay off suppliers paid in cash. The situation is apparently even worse at liquor shops.
3) At a conference pertaining to cash management and payment processing, a person from the railways who I get friendly with (I grew up in a railway town and am passionate about trains, and know quite a bit about the railways as well as their cash-management systems) lets drop a nugget — they have trunks full of counterfeit currency notes which they do not know what to do with. Probably no other wing of the Indian government collects as much cash as does the Indian Railways. And the problem, which at one stage used to be restricted largely to the border and coastal areas, is now almost nationwide. The Indian Railways, incidentally, is amongst the fastest in adopting non-cash transaction systems. And monsoons as well as other natural calamities are a good way of declaring currency damaged and destroyed.
4) A recent phenomenon is the surfacing of counterfeit notes from ATM dispensers, and the refusal of the concerned banks as well as authorities to do anything about it, leaving the customer eventually with a loss. This is an activity that is extremely suspect, as “stuffing” of ATM cartridges is supposed to be an intensely-controlled and monitored activity, one that this correspondent is familiar with. There is no way counterfeit currency notes can be delivered through ATMs unless there is internal complicity of a very high nature, and complaints of this sort should be escalated to the highest in the relevant bank as well as the RBI, without any issue of the suspect bank/branch being permitted to interfere on any grounds whatsoever. As mentioned before, the rules regarding compulsory 100% scanning and verification of currency notes dispensed, do not come into play till March 2011.
All this, however, still does not answer the basic question — what is the man on the street supposed to do when saddled with a fake currency note? Destroying, holding on to, or transporting a fake currency note is a crime in itself. The only option is to surrender it to the authorities. But which one?
A few more points on my experience with this subject:
1) To try and go to the local RBI office, as this correspondent did one fine sunny day in Delhi, to try and find out, was like committing suicide. A polite and helpful elderly guard at the entrance, when told about my mission, took me to one side and said that even entering the RBI premises with a fake note was a crime and that he would have to detain me till the local police came to take me away. So it was better if I did not visit the RBI.
2) The bank is obliged to lodge an FIR with the local police, which in itself is not an issue if you have the wherewithal to handle the subsequent eventualities, but the stated format of the report to be filed with the local police is enough to place you as the customer at the centre of the investigation. Even if that is not a problem and you wish to be an honest citizen, fact remains, you have lost the value of the counterfeit currency for sure. And the bank as well as the RBI, instead of supporting you legally for what you may perceive as having done your duty, will expect you to fight the legal battle on your own. This is also seized upon as a great opportunity by your enemies to put you into even more trouble.
3) The local police are always keen to catch people in the business of counterfeit currency. Sadly, any victim will do, and local traders dealing in cash are extremely susceptible to this. Besides, it makes for great headlines, and anybody caught, howsoever innocently, is immediately a social outcast.
4) Sending currency notes by uninsured post is also illegal. So the option of sending a fake or counterfeit currency note by post to the Financial Investigation Unit in Delhi, which is one more entity dealing with this issue, may not really be correct. In any case, as of now, they do not accept complaints from the general public.
There is a Parliamentary ‘House Panel Committee on Counterfeit Currency’. Not much is known about what they do, but yes, a few months ago, they expressed shock at the government's decision to outsource the printing of currency notes to the USA, UK & Germany. So maybe you could write to your elected representative on the subject. Maybe not, too.
A few decades ago, statistics on satisfaction levels of meals on trains and telephone users were calculated based on the actual complaints received. Needless to say, the number of complaints received was very low, so it was presumed that the satisfaction level was very high.
Likewise, the authorities would have us believe that the amount of counterfeit currency in circulation is very low, and one reason is because the number of complaints are very low — ignoring the fact that if citizens complain about counterfeit currency, they go straight to jail.
(The third part of this series will appear on Monday, 19th July).